Call it a timely coincidence but the negative shift in risk sentiment today couldn't come at a better time for AUD/USD sellers. Price has been knocking on the door of the 100-day MA (red line) over the past three days but ultimately, buyers appear to have encountered failure to break above that - barring any miraculous turnaround in risk sentiment later in the day.

Price is now heading back towards a test of the December low @ 0.7172 but more importantly the technical support from the 13 November low @ 0.7164. A break below the latter will see price extend a move back downwards towards 0.7100 and possibly the year's lows once again.

Right now, sellers are in control on both the daily and hourly charts, and with fundamentals also supportive of a move lower today i.e. risk-off sentiment, this could be the needed push for sellers to drive a break to the downside. Again, for that to happen watch out for the 13 November low @ 0.7164.

As for buyers, it's all about getting back above the 100-day MA @ 0.7227 in order to get a reprieve from the recent downside pressure.

The key risk event for the pair later today will be the US November retail sales data, but that aside, it's all about risk sentiment as we close out the week.

The Australian dollar is in danger of falling to a fresh cycle low. A drop below 0.7021 would take out the October low and mark the worst level since February 2016.

The low so far is 0.7024, so we're dangerously close to a breakdown and it will be coming at a tough time of year for liquidity. The 46 point drop in the S&P 500 isn't helping and neither is talk of USD-positive rebalancing flows.

Update: It's broken down to 0.7019. There are no stops yet but watch closely.

After turning negative on the day near 0.7020 following the strong employment data from the United States, the AUD/USD pair rose sharply in the last hour as the greenback came under heavy selling pressure on FOMC Chairman relatively dovish comments. The pair, which touched its highest level since December 21 at 0.7110, was last seen trading at 0.7095, adding 1.3% on a daily basis.

Earlier today, the U.S. Bureau of Labor Statistics reported that nonfarm payrolls increased by 312K in December and the annual wage inflation rose to 3.2% with both data surpassing analysts' estimates. With the initial market reaction, the US Dollar Index quickly retraced its daily fall and rose to 96.60. However, FOMC Chairman Powell comments forced the index, which is now down 0.1% on the day at 96.17, to reverse its course.

Speaking in a conference in Atlanta, Fed chief Powell said that they were ready to adjust the monetary policy if data suggested that downside risks were increasing and added that they could use all the tools as appropriate in a future crisis.

Additionally, the strong upsurge witnessed in major equity indexes in the U.S. help risk-sensitive currencies outperform their rivals in the last session of the first week of 2019.

The losses in the S&P 500 futures are likely overshadowing the overnight gains in the US equities and copper.

The AUD/USD pair is currently trading at 0.7169, having clocked a low of 0.7158 soon before press time; a level last seen on Jan. 10.

The Australian currency is feeling the pull of gravity, possibly due to the risk-off tone in the S&P 500 futures. As of writing, the S&P 500 futures are down 0.24 percent on the day. Further, Japan's Nikkei is reporting a 0.12 percent drop. Meanwhile, Chinese stocks are trading flat-to-negative.

Looking ahead, the pair could slide toward 0.71 if the risk aversion worsens. Technically speaking, a daily close above the stiff resistance of the 100-day exponential moving average (EMA) would signal a continuation of the rally from recent lows below 0.70

Bulls' conviction will ease further on a break below 0.7155, a relevant Fibonacci support.

The Aussie couldn't grab momentum from positive trade war headlines, neither from solid Wall Street's advance, usually bullish factors for the commodity-related currency that this time, benefited the greenback. The AUD/USD pair spent the week hovering around the 0.7200 level, ending it with modest losses at 0.7165. Attempts to extend gains beyond the 0.7200 level were rejected on approaches to the previous weekly high of 0.7234, as bulls lost conviction on concerns about a global economic slowdown. Not even resurgent oil prices or gold ones were enough to trigger some gains, somehow indicating that the pair could turn south. There are two main factors that could determine the pair's direction at the beginning of the week: trade war headlines and Chinese Q4 GDP. US President Trump said over the weekend that progress has been made with China, although he repeated that there are no plans on lifting tariffs on imports from the Asian country. As for China's growth, the market is expecting a quarterly growth of 1.4%, while the YoY figure is foreseen at 6.4% vs. the previous 6.5%. Worse-than-expected numbers will put risk-off on the table, with the greenback then poised to extend its gains against the AUD.

The pair holds above the 61.8% retracement of its December/January decline at 0.7155, which limits the downside at the time being. The daily chart shows that the 100 DMA heads marginally lower a couple of pips above the mentioned Fibonacci level, while the 20 DMA advances around 0.7110. The Momentum indicator keeps heading north, despite being in overbought territory, although the RSI has already begun easing, now at around 52. In the 4 hours chart, the pair trades within directionless moving averages, the Momentum is directionless around its 100 level, while the RSI eases around 43, all of which skews the risk to the downside.

The currency pair has hit three weeks and could slide further, having charted a lower high earlier this month.

AUD/USD is falling fast on growing prospects of RBA rate cut.

The AUD/USD pair is currently trading at 0.7076; a level last seen on Jan. 4; having carved out a bearish-lower high above 0.72 over the last 10 ten days.

The currency pair fell 0.68 percent yesterday - its biggest single-day drop since Jan. 2 - as an out-of-cycle mortgage rate hike by the National Bank of Australia (NAB) boosted prospects of an RBA rate cut.

Cash rate futures now put the odds of a 25 basis point decrease in the cash rate by November this year as a two-in-three chance, according to Business Insider.

The market narrative is that the hike in variable interest rate mortgages will likely accentuate the housing market slowdown and force the RBA to cut rates.

No wonder, the Australian currency is feeling the pull of gravity. The sell-off could gain further traction if the US-China trade optimism fades. The AUD could see a deeper drop against Sterling as Brexit optimism is boding well for the British currency.
AUD/USD Technical Levels

Australian business conditions and profitability collapsed at the end of 2018

Australian business conditions deteriorated sharply late last year, tumbling by the most since the height of the GFC. They are now the weakest since late 2014.

The deterioration was broad-based across states and industries.

New orders declined and business confidence remained below trend, suggesting “conditions are unlikely to rebound”, according to the National Australia Bank.

The results fit with other business surveys conducted by the Ai Group and Illion that have also weakened noticeably in recent months.

Financial markets currently see around a 60% chance that the RBA will cut rates by the end of the year. We’ll hear a lot from the bank next week.

Australian business conditions deteriorated sharply late last year, tumbling by the most since the height of the GFC.

The National Australia Bank’s (NAB) Australian Business conditions index, contained its broader Business Confidence survey, tumbled to +2 points in December, down sharply from +11 points in November.

It was the biggest one-month drop since the GFC, and left overall business conditions at the weakest level since September 2014.

“Business conditions fell sharply in December, and while caution should be taken when interpreting data around the Christmas/New Year period, this outcome continues the downward trend in conditions over the second half of 2018,” said Alan Oster, Chief Economist at the NAB.

“At face value, the fall over the past six months suggests a significant slowing in the momentum of activity in the business sector — especially from the highs seen earlier in the year.

Making the decline all the more ugly, and worrying, Oster said the deterioration was relatively broad-based, be it by location or sector.

“The deterioration… was driven by declines across trading, profitability and employment, and was relatively broad-based across states and industries,” he said, pointing to the chart below showing the drop in business conditions reported across the country.

“Conditions remain particularly weak in the retail industry which reports further ongoing deterioration.

“Capacity utilisation remains above average, though forward orders are below average and falling. Alongside below average business confidence this suggests conditions are unlikely to rebound.”

As seen in the table below, the three subindexes that comprise the conditions index weakened from November, particularly readings for profitability and trading conditions that fell sharply.

“The result was driven by declines in all sub-indexes with employment falling five points to +4 index points, profitability falling 8 points to 0 index points and trading conditions declining to +7 index points,” Ostar said.

For unemployment looking ahead, the NAB said the employment subindex, at +4 points, signals a slowing in employment growth ahead.

“At face value, the decline in the employment index suggests a slowing in the pace of employment growth to 18,000 per month from 22,000 per month,” Oster said.

While not pointing to dire hiring levels by any stretch, disappointingly, particularly for the RBA and Australian workers, the latest survey pointed to a further easing in wage and inflationary pressures.

“Surveyed measures of prices and wages eased in December. Notably, retail prices were flat in the month,” Oster said.

“Overall, these measures suggest that inflationary pressure remains weak, with final products prices and input prices such as purchase costs and labour costs continuing to track at relatively low levels.”

So no sign that unemployment, even sitting at multi-year lows in December, is doing anything to boost wage and inflationary pressures.

That’s a concern, especially with business confidence, as Oster points out, remaining entrenched at below-average levels at +3 points in the latest survey, unchanged from the level reported in November.

Accompanied by a drop in new orders, Oster says the signals from the December report should be of concern, particularly if maintained or built upon in the months ahead.

“With conditions having weakened notably in December following a trend slowing over the second half of 2018 we will be looking to the next readings from the business survey to confirm if the true underlying pace of business activity has slowed as sharply as the December survey suggests,” Oster says.

“With confidence remaining below average and forward orders having also declined our expectation is that, at the very least, a significant portion of the decline in business conditions will persist.

“If business activity has significantly slowed there could be some implications for the labour market and business capital expenditure (CAPEX) — two important variables whose outlook are critical for our outlook in 2019.

While readings on capacity utilisation and forward hiring held up in the latest survey, the steep, broad-based deterioration in business conditions across the country are unlikely to be welcomed by the RBA, especially as it’s banking upon non-mining business investment and strong labour market conditions to keep Australian GDP growth running above 3% both this year and next.

Unless that eventuates, the RBA’s expectation for a gradual decline in unemployment and gradual lift in wage and inflationary pressures is unlikely to occur, and will only feed into growing expectations that it may have to cut its cash rate further in the year ahead.

Financial markets already see the prospect of a 25 basis point rate cut by the end of this year at around 60%, mirroring the shift in mindset seen from an increasing number of economists who also expect the next move in the cash rate to be lower.

The latest survey was conducted between January 8 to 14, a period when financial markets were recovering sharply from a steep plunge in cyclical assets seen late last year.

The themes of the NAB survey also fit with those seen in separate PMIs on Australia’s manufacturing, services and construction sectors released by the Ai Group earlier this month. They also align with sentiment expressed by Australian business executives in the latest Illion Business Expectations Survey.

Combined, all suggest the momentum in Australia’s business sector is slowing, and fast.

RBA's policymakers downgraded inflation and growth forecasts for this year.

Chinese banks to resume activity after a long week of holidays.

The AUD/USD pair consolidated its losses Friday, recovering from a fresh multi-week high of 0.7060 to close the day below the 0.7100 figure. Aussie's decline was triggered by RBA's Governor Lowe, who said that the case of a rate cut is more balanced with that of a rate hike, amid mounting concerns about the local housing sector. On Friday, the RBA released the Minutes of its latest meeting, which showed that policymakers slashed their GDP and inflation forecasts for this year, triggering the slide to the mentioned low. The later bounce came by the hand of Wall Street, as the US major indexes closed mixed, with only the DJIA in the red and well off its daily low. The lack of progress in US-China trade talks added pressure on the commodity-linked currency.

The daily chart indicates that the decline could continue these upcoming days, s technical indicators resumed their slides on Friday now at levels last seen early January, while the price remains well below all of its moving averages, with the 20 and 100 DMA converging around 0.7170. In the 4 hours chart and for the shorter-term, the risk is also skewed to the downside, as the pair continues developing below a bearish 20 SMA, which crossed below the larger ones, while technical indicators lack directional strength, both in negative ground, the Momentum near its mid-line but the RSI closer to oversold readings, indicating the absence of buying interest.

While upbeat Australian business survey data propelled the Aussie during early Tuesday, the AUD/USD managed to post a day’s high near 0.7090 on the US President Donald Trump’s comments favoring a likely trade deal between the US and China.

However, the sellers continue to lurk ahead of the short-term descending trend-line resistance, at 0.7095, that connects highs marked since last Wednesday.

Should the pair cross 0.7095 barrier, its rise to 0.7140 horizontal-line can be expected whereas 0.7170 and a downward sloping resistance-line at 0.7205 may confine additional upside.

Alternatively, the 0.7065 and the recent low around 0.7050 seem to be the immediate supports for the pair, a break below which can drag the quote to 61.8% Fibonacci Expansion level of its latest pullback, at 0.7030.

In case, the bears manage to conquer 0.7030, 0.7000 and 0.6980 could become their next favorites.